LPI Capital’s 1Q18 appeared broadly in-line with expectation, with net profit outperforming that of 1Q17 by 3.0% yoy but was down by 12.4% qoq due to higher claims incurred. The operating environment in 1Q18 remained challenging for LPI due to the price competition in the fire insurance and motor segments, which are LPI’s underwriting profit drivers. That said, the overall gross earned premium growth (supported mainly by fire insurance), remained healthy at 9.9% yoy though was flat qoq. Reiterate BUY, price target unchanged at RM18.33 (adjusted for 1:5 bonus issue).

1Q18 Net Profit Rose by a Marginal 3% Yoy; Higher Claims the Culprit

LPI Capital saw its 1Q18 net profit grow by a marginal 3% yoy to RM74m while PBT was at RM93m (+3.4% yoy). Results were broadly in-line with our expectations. At the topline, 1Q18 gross earned premium (GEP) continued growing at 9.9% yoy though was flat qoq. Growth was mainly supported by fire (+14.3% yoy) and marine/aviation/transit (MAT) (+8.8% yoy) while the motor segment saw a relatively flat GEP yoy. As a result of a higher retention rate in 1Q18 of 61.9% against 56.3% in 1Q17, this had resulted in higher claims in the group, which dampened LPI’s 1Q18 underwriting profit (RM59.3m +1.5% yoy; -36.3% qoq). 1Q18 net claims ratio was higher at 47.1% vs. 39.8% in 1Q17 and 34.6% in 4Q17.

Key Earnings Driver Is the Fire Segment

The fire segment remains the key driver, contributing 42.5% to 1Q18’s net earned premium (NEP), while registering a growth rate of 21.6% yoy. Its motor (NEP +7.8% yoy) contributed 30.8% while marine, aviation & transit (MAT) segment contributed a marginal 2.3% to toal NEP.

Reiterate BUY, Price Target Unchanged at RM18.33

We reiterate our BUY recommendation and price target of RM18.33 (based on a 3.34x 2018E P/BV target). We continue to like LPI for being the market leader in the general insurance segment with an 8.1% market share while continue seeing steady premium growth amidst a more competitive market (under the 2nd phase of industry detarrification), disciplined underwriting and superior margins.

Source: Affin Hwang Research - 27 Apr 2018